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7. COSTS UNDER PHS GRANT-SUPPORTED PROJECTS/ACTIVITIES (PHS GPS 9505)

Costs borne in whole or in part by a PHS grant, and any non-Federal
matching required by the terms of the grant, are considered to
be "project costs" and are subject to the cost principles
and the policies in this section. Under the total approved budget
concept, any expenditures charged to an approved budget that consists
of both Federal and non-Federal shares are deemed to be borne
by the grant in the same proportion as the Federal/non-Federal
participation in the overall budget.

Applicants for discretionary grants are expected to anticipate
and justify their funding needs and the activities to be carried
out with those funds in preparing the budget and accompanying
narrative portions of their applications. Unless otherwise indicated
on the Notice of Grant Award (NGA), a discretionary award based
on the information included in the approved grant application
constitutes the required prior approval referred to in several
of the following sections. Postaward requests to incur costs or
undertake activities that are not described in the approved application
and that require prior approval are subject to the requirements
in section 8, "Changes in Expenditures/Activities."(1)

The project costs comprise the allowable direct costs incident
to performance of the grant activities plus the allocable portion
of the allowable indirect costs of the organization, less applicable
credits. A direct cost is any cost that can be specifically identified
with a particular project or program. Direct costs include, but
are not limited to, salaries, travel, equipment, and supplies
directly benefiting the project or activity. Indirect costs are
those incurred by an organization for common or joint objectives
and cannot be identified specifically with a particular project
or program. Facilities operation and maintenance costs, depreciation,
and administrative expenses are examples of costs that are usually
treated as indirect costs. All costs must be reasonable and necessary.

An important element in all phases of the grants administration
process--preaward, award, and post-award--is the identification
of allowable costs. The basis for determining the allowability
and allocability of costs charged to PHS grants and cooperative
agreements is set forth in 45 CFR Part 74, Subpart Q, and 45 CFR
Part 92.22. Five separate sets of cost principles, based on type
of organization, are prescribed for recipients and cost-type contractors:
(2)

Each recipient or contractor is subject only to the set that applies
to its type of organization. A subgrantee or contractor under
a grant is subject to the cost principles applicable to its type
of organization, which may not necessarily be the same as that
of the grantee.

The cost principles permit an organization to establish and use
its own accounting system to determine costs, provided it is based
on sound accounting principles consistently applied to all organizational
activities regardless of the source of funds supporting those
activities. Although costs may be charged as either direct or
indirect depending on their identifiable benefit to a project
or program, such costs must be treated consistently for all work
of the organization under similar circumstances so as to avoid
duplicate charges.

Organizations must have procedures for determining the allowability
of costs to grant-supported activities and projects according
to the applicable cost principles and other terms of the award.
Outlined below are those costs generally allowable and unallowable
as project costs under PHS discretionary grant programs, including
both direct and indirect costs.

This section is not exhaustive; the cost principles should be
consulted for more specific guidance. This section also addresses
certain cost items that are not specifically covered in the cost
principles or elsewhere and, in some cases, supplements the language
in the principles.

Aside from the cost principles and supplemental policies in this
section, the allowability of costs may be subject to additional
requirements specified in the program legislation and regulations
and in the specific terms of an award.

This section applies to grantees and, where applicable, to subgrantees.
It does not apply to contractors under grants unless the language
for a given provision indicates otherwise. However, as stated
earlier, the applicable cost principles do apply to such contractors.

If grantees are uncertain whether a particular cost is allowable,
they should contact the GMO of the appropriate PHS awarding office.

Advertising--Allowable only for recruitment of staff
or trainees, procurement of goods and services, disposal of scrap
or surplus materials, and other specific purposes as indicated
in the terms of the award necessary to meet the requirements of
the grant-supported project or activity.

Alcoholic Beverages--Generally not allowable unless
authorized in the approved project and consistent with the purpose
of the award.

Air Conditioning Equipment--Allowable.

Alteration and Renovation--Alteration and renovation
(A&R) is defined as work required to change the interior arrangements
or other physical characteristics of an existing facility or installed
equipment so that it may be more effectively utilized for its
currently designated purpose or adapted to an alternative use
to meet a programmatic requirement. A&R costs that do not
constitute construction are allowable charges to PHS grant-supported
projects and activities.

Routine maintenance and repair of the organization's physical
plant or its equipment are not considered to be A&R. Certain
costs of installing equipment, such as the temporary removal and
replacement of wall sections and door frames in order to place
equipment in its permanent location or the costs of connecting
utility lines, replacing finishes and furnishings, and installing
any accessory devices required for the equipment's proper and
safe utilization, may be considered either equipment costs or
A&R costs depending on the recipient accounting system and
are allowable.

New construction is unallowable unless specifically authorized
by the program legislation (see "Construction" and appendix
2). A&R projects in an existing building that are considered
construction, such as relocation of exterior walls, roofs, and
floors; attachment of fire escapes; development and repairing
of parking lots; or completion of unfinished shell space to make
it suitable for human occupancy are unallowable unless authorized
by the program legislation.

Work necessary to obtain an initial occupancy permit for the intended
use is not an allowable A&R cost.

Subject to the limitations set forth below, A&R costs may
be charged to PHS grant-supported projects provided that--

The program legislation or implementing regulations or other
grant terms do not exclude "alteration and renovation."

The grantee is not an individual or a foreign institution.

The grant is not a conference grant.

The building has a useful life consistent with program purposes
and is architecturally and structurally suitable for conversion
to the type of space required.

The A&R is essential to the project supported by the grant.

The space involved will actually be occupied by the project.

The space is suitable for human occupancy before A&R work
is started, except where the purpose of A&R is to make the
space suitable for some purpose other than human occupancy (e.g.,
storage).

If the space is rented, evidence is provided that the terms
of the lease are compatible with the A&R proposed.

The amount charged does not exceed the following limitations:

The amount budgeted or used for A&R under a single grant
during three consecutive budget periods (whether or not the 3
years overlap two distinct competitive segments of support) cannot
exceed the lesser of $150,000 or 25 percent of the total funds
reasonably expected to be awarded by PHS for direct costs for
such 3-year period, unless a waiver is obtained from the awarding
office.

The maximum amount of PHS grant funds that may be applied
to any single A&R project is $150,000.

The amount of project funds rebudgeted for A&R during
a budget period cannot exceed $50,000 without prior approval from
the PHS awarding office.

A&R costs under programs that have statutory A&R, modernization,
or facilities assistance authority are limited to the costs of
modifying existing space and utilities within a completed and
finished structure that is suitable for human occupancy. The cost
of adapting any of the following interior building features to
the needs of the grant-supported activity are allowable under
these programs.

Physical characteristics of space, such as interior dimensions,
surfaces, and finishes

Internal environment, such as heating, ventilation, humidity,
and acoustics

Utility services, such as plumbing, electricity, gas, vacuum,
or other laboratory piping

Unfinished shell space to make it suitable for purposes other
than human occupancy, such as the storage of pharmaceuticals

Fixed equipment, such as casework, fume hoods, large autoclaves,
or biological safety cabinets

A&R costs of this type associated with a building under construction
or an otherwise incomplete structure may be allowed if
the space is to be adapted to particular program needs, it is
cost effective to perform such work while the building is being
constructed or the structure is being completed, and the A&R
costs are limited to the difference between the cost of completing
the interior space for general use and the cost of adapting the
space and utilities to meet specific program requirements.

If any A&R would affect the accessibility for physically handicapped
persons, then all parts of the building that are altered must
comply with the General Services Administration Accessibility
Standard (October 14, 1980).

Two copies of the following documents are to be submitted with
each request for approval of A&R costs in excess of $50,000
(whether proposed in the application or as a postaward rebudgeting
request):

A single line drawing of existing space and proposed alterations.

A narrative description of the proposed functional utilization
of the space and equipment requirements prepared by the persons
who will use and be responsible for the working space, e.g., the
program and administrative managers and, when appropriate, architectural
and engineering advisors. Final drawings and specifications will
be based on this description.

The description should include a detailed explanation of the need,
character, and extent of the functions to be housed in the space
for A&R, using the following headings, as appropriate:

Description of the existing and proposed utility systems for
the modified space

Description of plans to provide accessibility for the physically
handicapped

Provisions for meeting the requirements of the Life Safety
Code

The length of the property lease if the space is rented

Other information required by program legislation or regulations

When the proposed alteration is to occur in a building that
is under construction or in an incomplete structure, the following
documentation must also be provided:

A detailed justification for the need to perform the work
before the building is completed

A cost comparison between doing the work before and after
the building is completed

A description of other specific benefits to be gained by doing
the work before the building is completed

When the request is for more than $75,000 per budget period,
and if requested by the PHS awarding office, grantees should submit,
in addition to the information above, a copy of architectural
and engineering documents, including the following:

The final cost estimate

Coded architectural floor plans showing the final arrangement
of space committed to the PHS program

Final working drawings and specifications

The design analysis report, describing the heating, ventilation,
air conditioning, plumbing, and electrical power systems

Provisions to meet mandatory Federal requirements and special
clearances

When the recipient's own construction and maintenance staff is
used in carrying out the A&R, i.e., force account, the associated
costs are allowable provided the grantee can document that force
account is less expensive than contracting, and all costs are
substantiated by appropriate receipts for the purchase of materials
and certified pay records for the labor involved.

Animals--Allowable for the acquisition, care, and
use of experimental animals. If the recipient operates an animal
resource facility, charges for use of the facility should be determined
in accordance with the Cost Analysis and Rate Setting Manual
for Animal Resource Facilities (NIH Pub. No. 80-2006, October
1979). (4)

Audiovisual Activities--Allowable. "Audiovisual"
means any product containing visual imagery or sound, or both,
such as motion pictures, films, videotapes, live or recorded radio
or television programs or public service announcements, slide
shows, filmstrips, audio recordings, multimedia presentations,
or exhibits where visual imagery or sound or both are an integral
part. "Production" refers to the steps and techniques
used to create a finished audiovisual product including, but not
limited to, design, layout, scriptwriting, filming or taping,
fabrication, sound recording, and editing.

Under PHS discretionary grants (or subgrants under discretionary
grants), written prior approval must be obtained from PHS, which
will in turn seek, as appropriate, approval from the HHS Office
of the Assistant Secretary for Public Affairs to use project funds
to acquire or produce audiovisuals if the cost of any single audiovisual,
including the reported non-Federal share, exceeds or is expected
to exceed $25,000 and if the cost is to be treated as a direct
cost.

The requirement for prior approval does not apply to the production
or acquisition of films, videotapes, filmstrips, or slides that
are under subgrants or lump sum awards; under research and research
training grants in which the productions are to be used as research
or research training instruments; under research grants for the
purpose of documenting experimentation or research findings, provided
they are not intended for release to, or use with, the general
public; and for the purpose of placing captions for the deaf or
hearing impaired on films or videotapes not originally produced
for use with deaf or hearing impaired persons.

A recipient having in-house production capability must determine
if it would be more efficient and economical to use that capability
or to contract for the production of an audiovisual (see section
8, "Procurement").

If an audiovisual intended for general public audiences (i.e.,
persons who are not health professions personnel and who are not
directly involved in project activities either as employees, providers
of health services to patients, or other participants such as
volunteers or patients) is produced under a PHS grant-supported
project, the recipient must submit two prints or tapes of the
finished product along with its annual or final progress report
(see section 8, "Reporting"). The costs of such prints
or tapes are allowable project costs.

Audiovisuals produced under a PHS grant-supported project must
bear an acknowledgment and disclaimer, as appropriate, such as:

The production of this motion picture (television program,
etc.) was supported by Grant No. ____________ from (name of awarding
agency). Its contents are solely the responsibility of (name of
grantee organization) and do not necessarily represent the official
views of (name of awarding agency).

Audit Costs--Allowable. The charges may be considered
a direct cost when the audit scope is limited to a single PHS
grant-supported project or the audit scope includes more than
one project, but the costs can be specifically identified with
and allocated to each project on a proportionate basis, and this
practice is followed consistently by the grantee; otherwise, charges
for audits should be treated as indirect costs.

Bad Debts--Not allowable.

Bonding--Allowable. See 45 CFR Part 74, Subpart
C, and 45 CFR Part 92.36 for policies and requirements concerning
bonding.

Books and Periodicals--Allowable as a direct cost
when required for the conduct of the project. Where an institution
has a library, books and periodicals should generally be provided
as normal library service and treated as indirect costs rather
than being directly charged.

Communications--Allowable as direct costs incurred
for local and long distance telephone calls, telephone surveys,
telegrams, postage, etc., but only when they can be specifically
identified to the project and are consistently treated as direct
costs. Otherwise, they should be treated as indirect costs.

Conference Services--Allowable under conference
grants for necessary recording of proceedings, simultaneous translation,
subsequent transcriptions, and other similar costs.

Construction--Allowable only when the program legislation
includes specific authority to construct facilities and PHS specifically
authorizes such costs.

Allowable and unallowable construction costs under construction
grants may generally include, but are not limited to, those listed
below (see also appendix 2). Programmatic regulations and other
terms of the award should be consulted for the specific costs
allowable under a particular program.

Allowable costs

Site survey and soil investigation

Site clearance (as long as reflected in bid)

Sidewalks necessary for use of facility

Driveways to connect with public roads

Parking areas

Bid advertising

Architect fees

Liability insurance

Fixed and movable equipment

Project management

Unallowable costs

Relocation of utilities

Offsite improvements

Consultant fees not related to actual construction

Equipment purchased through a conditional sales contract

Bonus payments to contractors

Damage judgment suits

Fundraising expenses

Legal services not related to site acquisition

Consultant Services--Allowable. A consultant is
an individual hired to give professional advice or services for
a fee but not as an employee of the hiring party. In unusual situations,
a person may be both a consultant and an employee of the same
party, receiving compensation for some services as a consultant
and for other work as a salaried employee. In order to prevent
apparent or actual conflicts of interest, grantees and third parties
must establish written guidelines indicating the conditions under
which the payment of consulting fees to employees is proper or
improper. The term "consultant" also includes a firm
that provides paid professional advice or services. Recipients
are expected to have policies governing their use of consultants
that are consistently applied regardless of the source of support
and are expected to justify using consultants instead of salaried
employees.

Charges to a project for consultant costs may include fees and
travel costs (transportation/per diem/ subsistence costs). Under
discretionary grants, PHS awarding office prior approval is required
if the use of consultants, either individuals or firms, constitutes
a transfer of substantive programmatic work or is required by
program regulations or other award terms. See "Federal (U.S.
Government) Employees" for allowable costs associated with
Federal employee consultants as well as circumstances of allowability.

Consulting fees paid by an educational institution to a salaried
member of its faculty are allowable only in unusual cases and
only if both of the following conditions exist (see Section J.6.e(1)
of OMB Circular A-21):

The consultation is across departmental lines or involves
a separate or remote operation.

The work performed by the consultant is in addition to his
or her regular departmental workload.

In all other cases, consulting fees paid to employees of recipient
or contractor organizations in addition to salary may be charged
to PHS grant-supported projects only in unusual situations and
when all of the following conditions exist:

The policies of the recipient or contractor permit such consulting
fee payments to its own employees regardless of whether Federal
grant funds are received.

The consulting services are clearly outside the scope of the
individual's salaried employment.

It would be inappropriate or not feasible to compensate the
individual for these services through payment of additional salary.

Authorization for consulting fees paid to individuals serving
as both employees and consultants of the same party must be provided
in writing on a case-by-case basis by the head of the recipient
organization or contractor incurring the costs or his or her designated
representative. If the designated representative is personally
involved in the project or program under consideration, the authorization
may be given only by the head of the recipient organization or
contractor. This authorization must include determination that
the required conditions are present and that there is no apparent
or actual conflict of interest.

Recipients and contractors are encouraged to obtain written reports
from consultants. If the recipient or contractor determines that
a report is not feasible or would probably not be useful, it may
exercise the option of not requiring a written report.

Where the costs of consultants are borne in whole or in part as
direct costs by PHS projects, the consultation must be documented
by an invoice from the consultant and a copy of the consultant's
written report, if any. Any of the following information not shown
on the invoice and/or report must be shown in a memorandum or
other document, including handwritten notations on the invoice,
signed by an organization official and retained in its files:
the name of the consulting firm or individual consultants; the
nature of the services rendered and their relevance to the grant-supported
activities, if not otherwise apparent from the nature of the services;
the period of service; the basis for calculating the fee paid,
e.g., rate per day or hour worked or rate per unit of service
rendered; and the amount paid.

Consumer/Provider Board Participation--Allowable
in accordance with specific program regulations. When not specifically
authorized by program regulations, only the following costs are
allowable with the prior approval of the PHS awarding office:

Reasonable and actual out-of-pocket costs incurred solely
as a result of attending a scheduled meeting, including transportation,
meals, babysitting fees, and lost wages.

The reasonable costs of necessary meals furnished by the grantee
to consumer or provider participants during scheduled meetings
if not reimbursed to participants as per diem or otherwise.

Where programmatic regulations permit but establish a maximum
annual income for eligibility for reimbursement of consumer/provider
board members for wages lost by reason of their participation
in board activities, the determination of eligibility will be
made on the basis of gross rather than net income.

Members of consumer/provider boards are not considered employees
or consultants of the grantee organization and therefore may not
be compensated for their services other than as above nor are
they eligible for associated fringe benefits. Although not eligible
for individual insurance coverage, board members may be covered
by an organizational insurance policy while acting in their official
capacities as board members (see "Insurance").

Depreciation or Use Charges--Not normally allowable
as a direct cost but may be included in the grantee's indirect
cost pool. Depreciation or use charges on equipment or buildings
acquired under a federally supported project are not allowed.

Donors Costs--Allowable for payment to volunteers
or research subjects who contribute blood, urine samples, and
other body fluids or tissues that are specifically project related.

Drugs--Allowable. See 42 CFR Part 50, Subpart E
for the maximum allowable cost for drugs under PHS grant-supported
projects and activities for health services.

Project funds may not be used to purchase drugs classified by
the Food and Drug Administration as "ineffective" or
"possibly effective" except in approved clinical research
projects or in cases where there is no alternative other than
therapy with "possibly effective" drugs.

Dues--Allowable for organizational membership in
professional organizations or societies if it can be shown that
such membership is necessary to accomplish the objectives of the
project. Such costs are not allowable under conference grants.

Payment of dues for an individual's membership in a professional
organization is allowable as a fringe benefit or an employee development
cost if paid according to an established institutional policy
consistently applied regardless of the source of funds.

Entertainment Costs--Not allowable. This includes
the cost of amusements, social activities, and related incidental
costs.

1.Consultant fees: Allowable
only for medical personnel of the Uniformed Services of the United
States (excluding Commissioned Officers of the Public Health Service)
when all of the following conditions are present:

a. The employees are providing the kind and extent of medical
services approved in the grant award.

b. Adequate numbers of qualified civilian medical personnel
are not available to provide these services, and eligible Federal
medical personnel are hired only in addition to those qualified
civilian medical personnel, if any, who are available.

c. The eligible Federal medical personnel employed as consultants
have prior written authorization from their commanding officers
to the effect that they are authorized to work on the grant-supported
activity and to be paid for their efforts. Such authorizations
may be given when the work will be performed during nonduty hours
or while employees are on authorized leave and the work will not
interfere with the performance of their Federal duties.

2.Outpatient or subject costs: Allowable when
the employee is a patient or subject undergoing study in connection
with activities supported by the grant.

3.Salary: Temporary employees specifically hired
to assist in the conduct of a sponsored PHS assistance program
may, if authorized by the grant award, be reimbursed from grant
funds. Except as provided in paragraphs a, b, and c below, no
salary or fringe benefit payments may be made from PHS grant funds
to career, career-conditional, or other Federal employees (civilian
or uniformed services) with permanent appointments provided under
existing position ceilings of a given Federal component.

These payments may be allowable when the employees obtain written prior
approval from their PHS agency and the employee is--

a. Either a Commissioned Officer of the Public Health Service
or a civil service employee carrying out duties for which specific
legislative authorization exists permitting direct Federal assistance
in lieu of cash under the grant or where the Government is reimbursed
for services rendered subject to restrictions applicable to such
personnel, including the Departmental Standards of Conduct.

b. A Commissioned Officer of PHS on a leave-without-pay
(LWOP) detail, provided--

(1) The grantee has obtained written prior approval from
the PHS awarding office.

(2) The total amount of salary paid from PHS grant funds
is proportional to the time devoted to the project and does not
exceed the total annual amount of pay and allowances officers
would receive from PHS if they were not on LWOP detail.

(3) The parties concerned have made a prior determination
that there is no actual or apparent conflict of interest or other
violations of the Departmental Standards of Conduct.

c. A civil service employee--

(1) Working under a grant to a non-Federal institution,
in which case salary payments from PHS grant funds must be proportional
to the time an individual devotes to the project. The total salary
support may not exceed the normal level of compensation for the
work performed.

(2) Performing services other than consultant services,
during nonduty hours, while in LWOP status, or on detail to a
State or local government, educational institution, or other nonprofit
organization provided--

(a) Prior written approval is obtained from the PHS grant
awarding office.

(b) All parties concerned are assured that there is no
possibility of dual compensation for the same work or an actual
or apparent conflict of interest or other violation of the Departmental
Standards of Conduct. The grantee/applicant must submit a letter
from a supervisory or personnel official in the Federal employee's
employing agency which approves his working on the grant project.
Such documentation must be provided to and deemed acceptable by
the GMO of the awarding office prior to incurring any cost chargeable
to the grant project for that employee's services.

4.Travel: Allowable when the employee is--

a. Working under a grant to a Federal institution.

b. Performing allowable reimbursable services as outlined
above.

c. Attending a PHS grant-supported conference during nonduty
hours; while in a preexisting LWOP status or one which continues
beyond the conference; or on detail to a State or local government,
educational institution, or other nonprofit organization, provided
such payments are made in accordance with established institutional
policy and the parties concerned have taken care to ensure that
there is no actual or apparent conflict of interest.

The four types of costs listed above are the only costs that can
be charged to PHS grants on behalf of Federal employees. Recipients
should advise any Federal employees with whom these types of arrangements
may be made to consult with their employing agency concerning
the allowability of such payments.

The above limitations do not apply to individuals who are part-time
Federal employees because of service on advisory groups or as
consultants to Federal agencies. (See HHS Standards of Conduct
Regulations in 45 CFR Part 73, Subpart J, for additional guidance.)

Fines and Penalties--Allowable only when resulting
from violations of, or failure of the organization to comply with,
Federal, State, and local laws and regulations when incurred as
a result of compliance with specific provisions of an award or
instructions in writing from the awarding office.

Fringe Benefits--Allowable in proportion to the
amount of time or effort employees devote to the grant-supported
project provided such costs are incurred under formally established
and consistently applied policies of the organization (see "Salaries
and Wages").

Tuition or tuition remission for regular employees or their families
is allowable as a fringe benefit. For policies applicable to tuition
remission for students working on grant-supported projects, see
"Salaries and Wages."See "Trainee Costs"
for the allowability of tuition costs for trainees and fellows.

Fundraising--Not allowable.

Honoraria--Not allowable when the primary intent
is to confer distinction on or to symbolize respect, esteem, or
admiration for the recipient. An honorarium that constitutes a
payment for services rendered, such as a speaker's fee under a
conference grant, is allowable.

Insurance--Allowable. Insurance is usually treated
as an indirect cost. In certain situations, however, where special
insurance is required because of risks peculiar to the project,
the premium may be charged as a direct cost if consistent with
organizational policy. Such premiums may include those on hazard,
malpractice, and other liability insurance to cover the grant-supported
project and the approved activities of grant-supported personnel,
including trainees, fellows, and governing board members.

Costs of insuring equipment purchased with project funds should
normally be included in indirect costs but may be allowable as
a direct cost if this manner of charging is the normal organizational
policy. Cost of insurance on Federal Government-owned equipment
is allowable.

The cost of medical insurance for fellows and trainees is allowable
as part of the institutional allowance (see "Trainee Costs")
if such medical insurance is required of all students of similar
standing as a condition of the individual's participation in the
institution's programs, regardless of the source of support.

Interest--Not allowable, unless specifically provided
for under program legislation such as that authorizing the payment
of interest on loans for the acquisition and/or modernization
of existing buildings or allowable under the applicable cost principles.

Land or Building Acquisition--Not allowable unless
acquisition or construction is specifically authorized by program
legislation and provided for in the grant award. Under those PHS
programs that have authority to permit recipients to acquire facilities,
considerations such as the type of program(s) being supported
and the Federal interest in purchased property will be taken into
account by the PHS awarding office in determining whether property
should be leased or purchased (see "Rental or Lease of Facilities
and Equipment"). For real property acquired with grant support,
the cost of title insurance may be charged to the grant in proportion
to the Federal share of the acquisition cost. Filing fees incurred
with the recordation in appropriate official records of the applicable
jurisdiction of the Federal interest in the real property may
also be charged to the grant. Use allowance or depreciation on
buildings which were not acquired under a Federal project are
allowable, usually as an indirect cost. (See also "Facilities
Purchased or Constructed by State or Local Governments.")

Leave--Allowable for employees as an employee fringe
benefit (see "Fringe Benefits"). Although trainees and
fellows in academic institutions are not entitled to vacations
as such, they are entitled to normal student holidays and the
period between semesters observed by their training institutions.
Trainees and fellows in nonacademic institutions are entitled
to the holiday and vacation schedule applicable to all trainees
and fellows at the institution.

Legal Services--Allowable where required in the
administration of a grant-supported project, subject to the limitations
described below and the applicable cost principles.

Legal costs incurred in the prosecution of claims, whether equitable
or monetary, against the Federal Government are unallowable charges
to PHS grant-supported projects. However, the legal costs of pursuing
an administrative action, e.g., an administrative grant appeal,
are allowable.

Before the recipient incurs legal costs that are extraordinary
or unusual in nature, the recipient should make an advance agreement
regarding the appropriateness and reasonableness of such costs
with the appropriate GMO of the PHS awarding office.

Library and Information Services--Allowable as a
direct cost when specifically required for the conduct of the
project and when identifiable as an integral part of the grant-supported
activity--for example, in those programs designed to develop and
support such services. General library support is not allowable
as a direct cost but may be included in the recipient's indirect
cost pool.

Lobbying--Generally unallowable. Costs of lobbying
activities to influence legislative action pending before the
U.S. Congress are unallowable. Costs of lobbying the Executive
or Legislative Branches of the Federal Government in connection
with a specific grant or cooperative agreement are unallowable.

Meals--Allowable for subjects and patients under
study when an organization customarily provides meals to employees
working beyond the normal workday, as a part of a formal compensation
arrangement, as part of a per diem or subsistence allowance provided
in conjunction with allowable travel, or when meals are a necessary
and integral part of a conference being supported by a conference
grant, provided that such charges are not duplicated in participants'
per diem or subsistence allowances. Guest meals are not allowable.
(See "Consumer/Provider Board Participation" regarding
the allowability of cost of meals for consumer and provider board
participants in grant-supported activities.)

Patient Care--Allowable to provide routine and ancillary
medical services on either an inpatient or outpatient basis if
the recipient has obtained prior approval from PHS to treat patients
and to incur patient care costs in the project receiving grant
support. Patient care costs where the need to incur such costs
has not previously been approved by PHS and rebudgeting out of
patient care costs must have PHS prior approval.

The following otherwise allowable costs are not classified
as patient care costs: items for personal expense reimbursement,
such as patient travel; consulting physician fees; or any other
direct payments to patients, including inpatients, outpatients,
subjects, volunteers, and donors. Such costs are considered to
be in the "Other Expenses" category of the budget.

For research grants, the institution will be reimbursed on the
basis of research patient care costs expressed as a rate or amount.

For grants other than research grants, reimbursement will be made
on the basis of "reasonable cost" as set forth in the
Principles of Reimbursement for Provider Costs (under Title XVIII
of the Social Security Act) published by the Health Care Financing
Administration, HHS, except where a different basis for reimbursement
is set forth in governing programmatic regulations or guidelines
(see Cost Principles for Hospitals, 45 CFR Part 74, Appendix E).

Pension Plan Costs--Allowable if the benefits are
reasonable and are provided according to the established policies
of the organization consistently applied regardless of the source
of funds, the amount assigned to each fiscal year is in accordance
with generally accepted accounting principles, and the cost assigned
to a given fiscal year is paid or funded for all plan participants
within 6 months after the end of that fiscal year. Amounts funded
in excess of the pension costs assigned to a given fiscal year
shall be applied to future years.

"Pension plan" is defined as a plan established and
maintained by an employer to systematically provide for the payment
of benefits to its employees after their retirement and may also
provide benefits such as permanent and total disability or survivorship
payments to beneficiaries of deceased employees. The "pay-as-you-go"
cost method, i.e., when pension benefits are paid by a recipient
directly to, or on behalf of, retired former employees or their
beneficiaries, may be used by State, local, or Indian tribal governments
or hospitals. Under this method, the benefits may be charged in
the year in which the payments are made to, or on behalf of, retired
former employees or their beneficiaries, provided that the recipient
follows a consistent policy of treating such payments as expenses
in the year of payments. See the applicable cost principles for
additional information on the allowability of costs associated
with pension plans.

Preaward (Preagreement)--A grantee may, at its own
risk, incur obligations and expenditures to cover costs prior
to the effective date of an award provided the following criteria
are met: the costs concerned are considered necessary to the conduct
of the project, the costs are allowable under the potential
award, and when required for specific expenditures or activities,
PHS prior approval was obtained. For new and competing continuation
awards, the costs must be incurred within 90 days prior to the
effective date of the award. In allowing the applicant/grantee
this flexibility, PHS expects the grantee to be fully aware that
such borrowing against future support must not impair its ability
to accomplish the project objectives in the approved timeframe
or in any way adversely affect the conduct of the project. Additionally,
the incurrence of costs prior to the award of a grant imposes
no obligation on the Federal Government to either make the award
or increase the amount of the approved budget.

Public Information Services--Allowable.

Publications--Allowable.

Page charges for publication in professional journals may
be paid from project funds if both of the following conditions
are met:

The paper reports work supported by the grant.

The charges are levied impartially on all papers published
by the journal, whether or not by Government-sponsored authors.

Other publication costs such as publications, books, monographs,
and pamphlets are allowable. The cost of a single publication
not exceeding $25,000 may be approved by the grantee institution.
Costs exceeding $25,000 for a single publication must receive
prior approval from the PHS awarding office. Purchase of reprints
without covers is an allowable cost. Purchase of reprints with
covers is allowable only if the cost is the same as without covers
or where the publisher sells only reprints with covers.

Publications, journal articles, etc., produced under a PHS grant-supported
project must bear an acknowledgment and disclaimer, as appropriate,
such as:

This publication (journal article, etc.) was supported by
Grant No._________________ from (name of awarding agency). Its
contents are solely the responsibility of the authors and do not
necessarily represent the official views of (name of awarding
agency).

Recruitment--Allowable subject to the conditions
and restrictions contained in the applicable cost principles.
These costs may include help-wanted advertising costs, travel
costs to preemployment interviews incurred by applicants, and
travel costs of employees while engaged in recruiting personnel.
Project funds may not be used for a prospective trainee's travel
costs to or from the grantee institution for the purpose of recruitment.
However, other costs incurred in connection with recruitment under
training or manpower programs, e.g., advertising, may be allocated
to a grant-supported project according to the provisions of the
applicable cost principles concerning recruitment costs (see "Travel"
and "Relocation").

Registration Fees (for Symposiums and Seminars)--
Allowable if necessary to accomplish project or program objectives.

Relocation--Allowable in other than change of
grantee institution situations when such costs are incurred
incident to the permanent change of duty assignment (for an indefinite
period or for a stated period of no less than 12 months) for an
existing employee working on a grant-supported project or upon
recruitment of a new employee for work on the project, provided
that the move is for the benefit of the grantee organization and
payment is made according to established organization policies
consistently applied regardless of the source of funds. These
costs may include transportation of the employee, his or her family,
dependents, and household goods to the new location and certain
expenses associated with the sale of the former home (see OMB
Circular A-122). Where relocation costs have been incurred in
connection with the recruitment of a new employee and the employee
resigns for reasons within his control within 12 months after
hire, the institution must credit the grant account for the full
cost of the relocation charged to the grant.

In change of grantee institution situations, the personal relocation
expenses of project directors or principal investigators and others
moving from the original grantee to a replacement grantee (see
section 8, "Changes in Project") are not allowable charges
to PHS grants.

Rental or Lease of Facilities and Equipment--Allowable
as indicated below. Due to the complex nature of determining the
allowable amount under certain types of leases, grantees are encouraged
to consult the PHS awarding office GMO before entering into leases
that will result in direct charges to the grant project.

In general, the rental costs for facilities and equipment applicable
to each budget period should be charged to that period as specified
on the NGA. However, see section 8, "Procurement," for
an exception to this general rule.

Subject to the limitations below, rental costs are allowable to
the extent that the rates are reasonable at the time of the decision
to lease, in light of such factors as rental costs of comparable
property, if any; market conditions in the area; the type, life
expectancy, condition, and value of the property leased; and available
alternatives.

Rental costs under leases that create a material equity
(5)
in the leased property are allowable only up to the amount that
would be allowed under the applicable cost principles had the
lessee purchased the property on the date the lease agreement
was executed. This would include depreciation or use allowances,
maintenance, taxes, insurance, etc., but would exclude unallowable
costs. A lease giving rise to material equity would be one that
is noncancelable or is only cancelable upon the occurrence of
some remote contingency and has one or more of the following characteristics:

The lessee has the right to purchase the property for a price
that at the beginning of the lease appears to be substantially
less than the probable fair market value when it is permitted
to purchase the property (commonly called a lease with a bargain
purchase option.)

Title to the property passes to the lessee at some time during
or after the lease period.

The term of the lease (initial term plus periods covered by bargain
renewal options, if any) is equal to 75 percent or more of the
economic life of the property, i.e., the period the property is
expected to be economically usable by one or more users.

When an institution transfers property to a third party through
sale, lease, or otherwise and then leases the property back from
that third party, the lease cost that may be charged to PHS projects
generally may not exceed the equivalent of the cost of ownership.

Rental costs under less-than-arms-length leases are allowable
only up to the amount that would be allowed under the applicable
cost principles had title to the property been vested in the lessee.
Under such leases, one party to the lease agreement is able to
control or substantially influence the actions of the other. Such
leases include but are not limited to those between divisions
of an organization; organizations under common control through
common officers, directors, or members; and an organization and
a director, trustee, officer, or key employee of the organization,
or his or her family, either directly or through corporations,
trusts, or similar arrangements in which they hold a controlling
interest.

Reserve Funds--Allowable for specific programmatic
purposes only where permitted by a program's authorizing statute
or governing regulations.

Contributions to a reserve fund for self-insurance are allowable
as specified in the governing cost principles (see "Contingency
Funds").

Sabbatical Leave--Sabbatical leave costs may be
included in a fringe benefit rate or in the institution's indirect
cost rate. Salary may be charged directly to a project for services
rendered the project by individuals while they are on sabbatical
leave provided that the salary is proportional to the service
rendered and is paid according to established institutional policies
applicable to all employees regardless of the source of funds.
Sabbatical leave paid by an individual's employer, in combination
with other compensation (e.g., partial salary from a PHS grant),
may not exceed 100 percent of individuals' regular salary from
their institution.

Salaries and Wages--Allowable. Compensation for
personal services covers all amounts paid or accrued by the organization
for services rendered to the project. These costs are allowable
to the extent that they are reasonable and conform to the established,
consistently applied policy of the organization and reflect no
more than the percentage of time actually devoted to the PHS-funded
project.

Payroll distribution: Amounts charged to grant-supported
projects for personal services must be based on an adequate payroll
distribution system. Standards for payroll distribution systems
are contained in the applicable cost principles. Briefly summarized,
these approved systems are as follows:

1. Hospitals

a. Monthly after-the-fact reports of the distribution
of time or effort for professional staff.

b. Time and attendance
and payroll distribution records for nonprofessional employees.

2. Nonprofit organizations

a. Monthly after-the-fact reports, including a signed certification
by the employee or a responsible supervisory official having firsthand
knowledge of the work performed that the distribution of activity
represents a reasonable estimate of the actual work performed
by the employee during the periods covered by the reports. Each
report must account for the total activity for which employees
are compensated and which is required in fulfillment of their
obligations to the organization.

b. For nonprofessional employees, additional supporting
reports indicating the total number of hours worked each day must
be maintained in conformance with the Department of Labor regulations
implementing the Fair Labor Standards Act (29 CFR Part 516).

The distribution of salaries and wages must be supported by
personnel activity reports as described above, except when a substitute
system has been approved in writing by the cognizant agency designated
under OMB Circular A-122.

3. State, local, and Indian tribal government agencies

a. Time and attendance or equivalent records for all employees.

b. Time distribution records for employees whose compensation
is chargeable to more than one grant or other cost objective.

4. Educational institutions

a. A plan confirmation system for professorial or professional
staff based on budgeted, planned, or assigned work activity, updated
to reflect any significant changes in work distribution.

b. Activity records system reflecting an after-the-fact
reporting of the percentage distribution of activity of employees.
For professorial and professional staff, the reports will be prepared
each academic term, but no less frequently than every 6 months.
For other employees, unless alternative arrangements are agreed
to, the reports will be prepared no less frequently than monthly
and will coincide with one or more pay periods.

c. Multiple confirmation records system for professorial
and professional staff, prepared each academic term, but no less
frequently than every 6 months.

d. By mutual agreement, any other method meeting the criteria
specified in paragraph J.6.b.(2) of OMB Circular A-21.

Charges for work performed by faculty members on sponsored research
projects during the summer months or other period not included
in the base salary period will be determined for each faculty
member at a rate not exceeding the base salary divided by the
period to which the base salary relates. The base salary period
used in computing charges for work performed during the summer
months will be the number of months covered by the faculty member's
official academic year appointment.

Alternate use of salary support due to receipt of a Research
(Career Scientist) Development Award: Grant funds awarded
under a PHS grant for an individual's salary but which are no
longer required for that purpose as the result of the transfer
of that individual's salary to a Research Career Development Award
(RCDA) or other RCDA-type career development award may not be
used for any other purpose without written prior approval from
PHS.

Overtime premiums: Premiums for overtime are generally
allowable (see governing cost principles); however, such payments
are not allowable for faculty members at institutions of higher
education. Where overtime premiums are allowable, the categories
or classifications of employees that are eligible to receive overtime
premiums should be determined according to the formal policies
of the organization consistently applied regardless of the source
of funds.

Bonus payments: Allowable as part of a total compensation
package provided that such payments are reasonable and are made
according to a formal policy of the recipient organization that
is consistently applied.

Compensation of students: Tuition remission and
other forms of compensation paid as, or in lieu of, wages to students
(including fellows and trainees) performing necessary work are
allowable provided that there is a bona fide employer-employee
relationship between the student and the institution for the work
performed, the tuition or other payments are reasonable compensation
for the work performed and are conditioned explicitly upon the
performance of necessary work, and it is the institution's practice
to similarly compensate students in nonsponsored as well as sponsored
activities. However, payments made for educational assistance
(i.e., scholarships, fellowships, and student aid costs) may not
be paid from PHS research grant funds even when they could appear
to benefit the research project to some degree. Also, see section
4, "Public Policy Requirements, Student Unrest Provisions."

The determination as to the allowability of such compensation
as a charge to a grant will be made on the basis of the cost principles
without regard to whether the compensation is or is not taxable.
Charges for tuition remission and other forms of compensation
paid to students as, or in lieu of, salaries and wages shall be
subject to the reporting requirements in section J.6 of OMB Circular
A-21 and shall be treated as direct or indirect costs according
to the actual work being performed. Tuition remission may be charged
on an average rate basis.

College Work Study Program: PHS grant funds may
be used to pay all or part of the non-Federal share of a student's
compensation under the Department of Education's College Work
Study Program. Payment of such compensation must be for the performance
of services necessary to the approved project from which payment
is made.

Service Charges--The costs of institutional services
and central facilities owned by the recipient institution, such
as computer services, are allowable.

Severance Pay--Allowable only to the extent that such payments
are required by law, employer-employee agreement, established
policy that constitutes an implied agreement on the part of the
organization, or the circumstances of the particular employment.
The amount of severance pay to be provided should be determined
according to the established organizational policy consistently
applied regardless of the source of funds and should be reasonable,
taking into consideration the practice of similar types of organizations
and the extent of the organization's dependence on Federal funds.
The applicable cost principles should be consulted regarding the
different treatment of severance pay in regular and mass termination
situations.

Taxes--Allowable. Such costs include taxes that
an institution is required to pay as they relate to employment,
services, travel, renting, or purchasing for a project. Institutions
must avail themselves of any tax exemptions for which activities
supported by Federal funds may qualify. On projects involving
construction, State sales and use taxes for materials and equipment
are allowable only when no refund or exemption on such taxes is
granted by the State.

Termination Settlements--When a grant is terminated,
the grantee shall not incur new obligations for the terminated
portion after the effective date and shall cancel as many outstanding
obligations as possible. The granting agency shall allow full
credit to the grantee for the Federal share of the noncancelable
obligations properly incurred by the grantee prior to termination.
See 45 CFR Parts 74.115(c) and 92.43. Costs related to the sale
of property are not allowable if the grantee is reimbursed at
a fixed amount or rate according to 45 CFR Part 74, Subpart O,
or 45 CFR Part 92.31.

Trailers and Modular Units--Allowable as indicated
below. A "trailer" is defined as a portable vehicle
built on a chassis that is designed to be hauled from one site
to another by a separate means of propulsion and that serves,
wherever parked, as a dwelling or place of business. A "modular
unit" is a prefabricated portable unit designed to be moved
to a site and assembled on a foundation to serve as a dwelling
or a place of business. The determination of whether costs to
acquire trailers or modular units are allowable charges to PHS
grant-supported projects depends on whether such units are classified
as real property or as equipment. The classification will depend
on whether the recipient's intended use of the property is permanent
or temporary.

A trailer or modular unit would be considered as real property
when the unit and its installation are designed or planned to
be installed permanently at a given location so as to seem fixed
to the land as a permanent structure or appurtenance thereto.
Units classified as real property may not be charged to a PHS
grant-supported project unless authorizing legislation permits
construction or acquisition costs or purchase of real property
and the specific purchase is approved by the PHS awarding office.

A trailer or modular unit would be considered equipment when the
unit and its installation are designed or planned to be used at
any given location for a limited time only. Units classified as
equipment may be charged to PHS grant-supported projects only
if program regulations do not prohibit the purchase of equipment
and prior approval is obtained as appropriate.

A trailer or modular unit properly classified as real property
or equipment at the time of acquisition shall retain that classification
for the life of the item, thereby determining the appropriate
accountability requirements under 45 CFR Part 74, Subpart O, or
45 CFR Parts 92.31 and 92.32.

Trainee Costs--Allowable under predoctoral and postdoctoral
training grants if permitted by the authorizing statute or governing
programmatic regulations. For each individual to be trained, such
costs may include a stipend and tuition and fees, including the
costs of medical insurance required of trainees as a condition
of their participation in the organization's training program
and required of all students of similar standing, regardless of
the source of funding, which are directly associated with and
necessary to the individual's training and are incurred within
the period of grant-supported training. Grantee institutions may
rebudget funds into or within the trainee cost category (i.e.,
stipends, tuition, and fees, including medical insurance) but
may not rebudget funds awarded for trainee costs into another
budget category without PHS awarding office prior approval. Trainee
travel is not considered a trainee cost for the purposes
of rebudgeting. Funds may be rebudgeted into trainee costs without
PHS prior approval to the extent that the resulting support for
trainees does not constitute a change in the scope or objectives
of the approved project (see section 8, "Changes in Expenditures/Activities").

Dependency allowances: Generally not allowable.

Institutional allowances (Fellowships) and training-related
expenses (Training Grants): Institutional allowances may
be requested by institutions sponsoring a predoctoral or postdoctoral
fellow unless otherwise restricted by law or regulations.

For training grants awarded under the National Research Service
Award authority, training-related expenses are also based on certain
allowable ceiling (maximum) amounts per year for each full-time
pre-doctoral and postdoctoral trainee.

Applicants for training grants and individual fellowships should
consult the individual program announcement or application kit
for the applicable institutional allowances provided under a particular
program. Institutional allowances under fellowships are provided
in lieu of all other institutional costs and are intended to cover
expenses including the following: tuition and fees, including
the costs of medical insurance, required of fellows as a condition
of their participation in the organization's training program
and required of all students of similar standing, regardless of
the source of funding; supplies and equipment; faculty salary;
trainee travel to attend scientific meetings; and other administrative
costs. Additional funds may be requested by the institution when
the training of a fellow involves extraordinary costs, such as
those incurred when the training requires field research and/or
travel to foreign sites. Such additional funds shall be provided
only in exceptional circumstances that are fully justified and
explained by the institution.

Expenditures under fellowship institutional allowances
are not subject to PHS prior approval and rebudgeting requirements
nor is the sponsoring institution required to account for these
expenditures on an actual cost basis. However, if the fellow is
not enrolled or engaged in training for more than 6 months of
the year of support for which the award was made, only one-half
of that year's allowance may be charged to the grant.

Institutional costs under training grants, e.g., research supplies
and equipment and faculty salaries, are allowable in accordance
with the rules on cost allowability prescribed in the cost principles
and this section.

Stipends: Allowable for fellowships, training grants,
or other types of grant-supported projects where such payments
are specifically permitted under the governing legislation or
program regulations.

Stipends provided to individual fellows or trainees are paid in
accordance with preestablished levels. Stipend levels for full-time
PHS fellowships and traineeships are based on a support year of
12 months. See the individual program announcement or application
kit for information on relevant stipend levels.

An institution is allowed to provide funds to an individual in
addition to the stipends paid by PHS. Such additional amounts
may either be in the form of augmented stipends, i.e., "supplementation,"
provided without obligation to the fellow or trainee according
to institutional policy or in the form of compensation (salary
and/or tuition remission) for services such as teaching or serving
as a laboratory assistant. However, funds characterized as "compensation
of students" that meet the requirements under "Salaries
and Wages, Compensation of students" are not considered stipend
supplementation. Also, assistance under the Veterans Readjustment
Benefits Act (G.I. Bill) is not considered as supplementation.
Under no circumstances, however, should the service requirements
detract from or prolong the training.

Institutions can determine what amount of supplementation, if
any, will be provided according to their own formally established
policies governing supplementation. The institution's policies
on supplementation must also include a means to ensure that those
policies are followed consistently. The policies must be documented
and are subject to audit. No Federal (grant) funds may be used
for supplementation unless specifically authorized under the terms
of both the program from which such supplemental funds are to
be received and the program whose funds are to be supplemented.
This is not intended to discourage the use of Federal loan funds.

Travel: Costs associated with travel necessary to
an individual's training, including attendance at meetings, that
are incurred within the period of grant-supported training are
allowable under PHS training grants. Registration fees associated
with such meetings are also allowable. However, travel costs may
not include travel between the trainee's or fellow's place of
residence and the training site, except in the case of certain
specialized programs that are relatively short in duration and
are expressly designed to train specific disadvantaged beneficiaries
or in the case of extreme need or hardship of an individual trainee
or fellow where a one-way travel allowance may be authorized by
the grantee. In the case of individual fellowships, such travel
will be paid from the institutional allowance (see "Trainee
Costs, Institutional allowances"). Awards for training at
a foreign site may include a single round-trip economy or coach
fare.

Tuition and related costs: Allowable unless otherwise
provided by the terms and conditions of the award. Tuition and
fees are allowable only to the extent that the same resident or
nonresident tuition and fees are charged to regular non-federally
supported students. Tuition at the postdoctoral level is limited
to that required for specified courses.

Transportation of Property--Allowable for freight,
express, cartage, postage, and other transportation services relating
either to goods purchased, in process, or delivered, including
instances when equipment or other property is moved from one recipient
organization to another. In a change of grantee institution situation,
the cost of transportation may be charged to the grant at either
the original or the new organization, depending on the circumstances
and the availability of funds in the appropriate active grant
account (see section 8, "Changes in Project").

Travel--Allowable as a direct cost where such travel
will provide direct benefit to the project. According to the organization's
established travel policy, such costs for employees working on
the grant-supported project may include associated per diem or
subsistence allowances and other travel-related expenses such
as mileage allowances if travel is by personal automobile.

Domestic travel is that performed within the recipient's own country.
Domestic travel includes travel within and between any of the
50 States of the United States and its possessions and territories
and also includes travel between the United States and Canada
and within Canada.

Foreign travel is defined as any travel outside of Canada and
the United States and its territories and possessions. However,
for an organization located outside Canada and the United States
and its territories and possessions, foreign travel means travel
outside that country.

In all cases, travel costs are limited to that allowed by formal
organizational travel policy and, in the case of air travel, less
than first class accommodations must be used when available. Grantees
are strongly encouraged to take advantage of discount fares for
airline travel through advance purchase of tickets where travel
schedules can be planned in advance (such as for national meetings
and other scheduled events). Recipient institutions must comply
with the requirement that U.S. flag air carriers be used by domestic
grantees to the maximum extent possible when commercial air transportation
is the means of travel between the United States and a foreign
country or between foreign countries. This requirement shall not
be influenced by factors of cost, convenience, or personal travel
preference.

If the recipient organization has no formal travel policy, HHS
travel regulations, including maximum per diem and subsistence
rates prescribed in those regulations, shall be used to determine
the amount for travel costs. This information may be requested
from the PHS awarding office and is available in the HHS Travel
Manual for public inspection and copying at HHS and regional office
information centers.

In addition to these general policies, some specific policies
applicable to various types of travel and travelers are indicated
below. Applicants and grantees should consult application instructions
to determine how to budget for the following types of costs, since
they are not all required to be budgeted as "travel."

Patients: If patient care is an approved activity
of the grant-supported project or program, the costs of transporting
patients to the site where services are being provided, including
costs of public transportation, are allowable. The purchase of
motor vehicles for this purpose may be allowable.

Conference Grants: Per diem or subsistence allowances
must be reasonable and must be limited to the days of attendance
at the conference plus the actual travel time required to reach
the conference location by the most direct route available. Where
meals and/or lodgings are furnished without charge or at a nominal
cost, e.g., as part of the registration fee, this should be taken
into account in setting the per diem or subsistence allowance.

Travel costs for attendees and participants at the conference
may not exceed economy class fare. In addition, the allowability
of foreign travel being supported by a conference grant (as proposed
in the grant application) will be determined in accordance with
PHS foreign travel restrictions in effect at the time of the award.

Conference grant funds may not be used to pay per diem or travel
expenses other than local mileage for local participants in the
conference.

In theory, all costs might be charged directly to benefiting projects
or programs. However, most organizations incur allowable costs
which cannot be readily identified with an individual project
or program. In these situations, the costs are allocated to the
projects and programs as "indirect costs." The end product
of this allocation process is an indirect cost rate(s) which is
then applied to individual grant-supported projects to determine
the amount of its indirect costs.

The establishment of an indirect cost rate is not necessary if
the organization's awards do not provide reimbursement for indirect
costs or limit such reimbursement to 8 percent of direct costs
as discussed below, the organization's total operations consist
of a single grant-supported project, or the organization appropriately
and consistently treats all costs as direct costs to projects
and accounts for them as such. In the latter case, the GMO must
be satisfied that the organization's accounting system can adequately
identify and support all costs as direct costs to the project
(see section 8, "Financial Management and Non-Federal Audits").
Such an accounting system must identify and segregate costs based
on a process that assigns costs commensurate with the benefits
provided to individual projects.

PHS reimbursement for indirect costs is subject to the following
provisions:

1. Indirect costs under all training grants (6)
other than those awarded to State or local government agencies
will be reimbursed at 8 percent of total allowable direct costs
exclusive of tuition and related fees and expenditures for equipment
or at the actual indirect cost rate, whichever results in a lesser
dollar amount. This limitation also applies to training funds
provided under subgrants to organizations other than State or
local government agencies. State and local government agencies
will receive reimbursement at their full indirect cost rate for
training grants.

2. Indirect costs on Research (Career) Development Awards
will be reimbursed at 8 percent of total allowable direct costs,
excluding the items in 1 above, or at the actual indirect cost
rate, whichever results in a lesser dollar amount.

3. Indirect costs will not be paid on fellowships or similar
awards where PHS funding is in the form of fixed amounts or the
normal published tuition rates of an institution and for which
the recipient is not required to account on an actual cost basis.

4. Indirect costs will not be reimbursed on construction
grants.

5. Indirect costs will not be reimbursed on grants to individuals,
foreign institutions, and Federal Government grantees.

6. Indirect costs for grants in support of conferences
will not be allowed except in the most unusual circumstances and
then only after negotiation (in advance of the award) between
the applicant and the GMO of the PHS awarding office.

7. Grants on which indirect costs are limited or prohibited
by law or regulation will be awarded in accordance with the legal
or regulatory restrictions.

8. When the grantee waives reimbursement of full indirect
costs, either no indirect costs or only partial indirect costs
will be awarded as appropriate.

9. The total amount awarded by PHS (direct plus indirect)
shall be based on the most current indirect cost rate at the time
of award and shall constitute a ceiling on the amount payable
to the grantee for a grant. The award of a grant shall not obligate
PHS to make any supplemental or other award for additional indirect
costs or for any other purpose.

10. If PHS funds are available, GMOs shall amend the grant
to provide additional funds for indirect costs only in the following
and in no other cases:

a. An error made by the granting agency in computing
the award. Included in this exception is the proviso that the
granting agency shall revise the award to provide additional funds
for indirect costs when a higher rate(s) than the rate(s) used
in the grant award is negotiated and becomes effective (that is,
the date of the Indirect Cost Rate Agreement) on or before 1 calendar
month prior to the beginning date of the grant budget period.

b. Restoration of funds previously recaptured by PHS as
part of a grantee's unobligated balance.

c. New or delinquent grantees for whom valid indirect cost
rates are established subsequent to an award.

d. Indirect costs associated with any additional direct
costs awarded for the expansion or extension of a project. Additional
direct costs awarded for other reasons may be accompanied by associated
indirect costs at the granting agency's option.

11. When a currently effective indirect cost rate is not
available at the time of an award because the grantee was delinquent
in the submission of its indirect cost proposal, the award shall
not include funds for the reimbursement of indirect costs. If
the grantee subsequently establishes a currently effective rate,
the GMO may exercise discretion to amend the award to provide
an appropriate amount for indirect costs if the amendment can
be made within the same Federal fiscal year in which the initial
award was made. However, the amount will be limited to the indirect
costs applicable to the period after the date of the grantee's
application. This provision does not affect local government agencies
that are not required to submit their indirect cost proposals
to the Federal Government. They may charge indirect costs to HHS
grants based on the rate computations they have prepared and are
keeping on file for subsequent Federal review.

12. Grantees may rebudget between direct and indirect costs
(in either direction) without PHS prior approval. However, this
authority may be exercised for training grants awarded to institutions
of higher education, hospitals, and other nonprofit institutions
only when the institution's actual indirect cost rate applied
to these grants is less than 8 percent of total direct costs as
adjusted.

13. Reimbursement of indirect costs is based on the application
of the appropriate indirect cost rate in effect during the period
in which the allowable and allocable direct costs are incurred.
The dollar amount of indirect costs applicable to a PHS grant-supported
project shall be determined by multiplying the appropriate indirect
cost rate(s) by the allowable direct costs that are actually incurred
during that period.

Indirect cost proposals will be prepared in accordance with applicable
cost principles and will conform to other cost policies in this
policy statement. Guidance on the preparation of indirect cost
proposals is provided in the following informational brochures,
which may be obtained from the office negotiating the indirect
cost rates (see appendix 8):

A Guide for Colleges and Universities (OASC-1, Revised)

A Guide for Hospitals (OASC-3, Revised)

A Guide for Nonprofit Institutions (OASMB-5, Revised)

A Guide for State and Local Government Agencies (OASC-10)

Grantees that use microcomputer-based automatic data processing
systems to prepare indirect cost proposals, supporting schedules,
etc., must be prepared to loan to HHS copies of the electronic
media on which the proposal data are stored (e.g., computer disks),
plus the operating application software and associated user documentation
used to analyze and manipulate the data. Materials on loan to
HHS will be used solely for review and analysis of the proposal
and will be returned to the grantee after the indirect cost rates
are negotiated. When grantees obtain proprietary software packages
designed or intended to be used for making indirect cost proposal
preparation, they must make sure that the terms of the acquisition
(or other arrangement with the software vendor) permit loaning
it to HHS.

Further information concerning the establishment of indirect cost
rates and the reimbursement of indirect costs may be obtained
from the offices that negotiate indirect cost rates (see appendix
8).

Transfers of costs to PHS grants by grantees, subgrantees, and
contractors under grants that represent corrections of clerical
or bookkeeping errors must be made promptly after the error is
discovered. The transfers must be supported by documentation that
contains a full explanation of how the error occurred and a certification
of the correctness of the new charge by a responsible financial
or administrative official of the recipient organization. An explanation
which merely states that the transfer was made "to correct
error" or "to transfer to correct project" is not
sufficient. It should be noted that frequent errors in the recording
of costs may indicate the need for improvements in the grantee's
accounting system and/or internal controls. Therefore, where such
errors occur, grantees are encouraged and may be required to evaluate
the need for improvements in these areas and to make what improvements
are deemed necessary.

As stated in the applicable cost principles, transfers of costs
from one budget period to the next solely to cover cost overruns
is not allowable.

Health professions capitation grants are not subject to the policy
stated above because of the general support nature of these awards
and the latitude and flexibility allowed recipients in the use
of these funds.

When salaries and/or other activities are being supported by two
or more sources, issues arise as to how these costs should be
allocated among the sources of support. It is HHS policy that
if a cost benefits two or more projects or activities in proportions
that can be determined, the cost should be allocated to the projects
based on the proportional benefit. If a cost benefits two or more
projects or activities in proportions that cannot be determined
because of the interrelationship of the work involved, the costs
may be allocated to benefitted projects on any reasonable basis.

PHS has determined that when salaries and/or other activities
are being supported by two or more PHS grant projects and the
specific conditions given below are met, costs may be charged
to any of those grants. Under these conditions, costs also may
be assigned entirely to one project, with written prior approval
from the PHS awarding office GMO. These conditions are as follows:

1. The projects are scientifically and technically
related.

2. The projects are under the direction of the same principal
investigator.

3. The projects have been funded by the same PHS awarding
office.

4. There is no change in the scope of the individual grants
involved.

5. The relating of costs will not be detrimental to the
conduct of work approved under each individual award.

6. The relatedness will not be used to circumvent the terms
and conditions of an individual award.

The term "applicable credits" refers to those receipt
or negative expenditure types of transactions that operate to
offset or reduce expensive items that are allowable to grant-supported
projects and activities as direct or indirect costs. Typical examples
are purchase discounts, rebates or allowances, recoveries or indemnities
on losses, and adjustments or overpayments or erroneous charges.

Applicable credits to direct charges made to PHS grants must be
treated as an adjustment on the grantee's Financial Status Report,
whether those credits accrue during or after the period of grant
support. The PHS awarding office will notify the grantee of any
additional actions that may be necessary (see section 8, "Reporting,
Financial Status (Expenditure) Reports").

A hospital that has not previously established research patient
care rates with HHS must submit its initial research patient care
proposal to the appropriate Division of Cost Allocation (DCA)
Regional Administrative Support Center responsible for the HHS
region in which the hospital is located immediately after being
notified that a grant providing for the reimbursement of research
patient care costs will be awarded. Hospitals that have previously
established research patient care rates with the Department must
submit a new research patient care rate proposal to DCA within
6 months after the close of each fiscal year. If a hospital is
unable to submit a proposal by the prescribed date, it may request
an extension of time from DCA. This request must contain a justification
for the extension and must specify the date the proposal will
be submitted. The request should be submitted on or before the
due date of the proposal. DCA will review the research patient
care proposals submitted by the hospitals and, based on these
reviews, will negotiate appropriate research patient care rates
with them. The amount included in PHS grant awards for research
patient care costs will be based on the research patient care
rates established by the hospital with DCA.

The following requirements apply to hospitals that are awarded
$25,000 or less in research patient care costs under any single
grant awarded by PHS:

1. If the hospital is a subawardee hospital, the grantee
will be responsible for negotiating reasonable fees for research
patient care services provided by the hospital.

2. If the hospital is a grantee, it must support its claims
for the reimbursement of research patient care costs by preparing
a research patient care rate computation for each fiscal year
during which the costs are claimed. The computation must be based
on Section IX.B.23 of the Department's cost principles for hospitals
(45 CFR Part 74, Appendix E) and must conform to the proposal
formats shown on pages 9 through 11 of A Guide for Hospitals.
The computation, along with the supporting documentation described
in the guide, must be retained by the hospital for possible review
and audit by, or in behalf of, the Department. The retention period
shall be in accordance with the Department's records retention
regulations (45 CFR Part 74, Subpart D). The rates developed by
the hospital will be treated as predetermined rates. However,
the patient care costs reflected in the hospital's expenditure
reports based on these rates will be subject to adjustment if
an audit or other review by, or in behalf of, PHS results in a
reduction in the rates.

A number of universities and other institutions have established
closely affiliated but separately incorporated institutions to
facilitate the administration of research and other programs supported
by Federal funds. Such legally independent institutions are often
referred to as "foundations," although this term does
not necessarily appear in the name of the institution. Typically,
the parent institution provides considerable support services
in the form of administration, facilities, equipment, accounting,
etc., to its foundation, and the latter, acting in its own right
as a PHS grantee, includes the cost of these services in its indirect
cost proposal.

Costs incurred by an affiliated but separate legal entity in support
of a grantee foundation are allowable for reimbursement under
PHS grants only if one of the following conditions is met:

1. The grantee foundation performing under a PHS grant
award is charged for, and is legally obligated to pay for, the
services provided by the parent institution.

2. The affiliated institutions are subject to a State or
local law that prescribes how Federal reimbursement for the costs
of the parent institution's services will be expended and requires
that a State or local official acting in his or her official capacity
approves such expenditures.

3. There is a valid written agreement between the affiliated
institutions whereby the parent institution agrees that the grantee
foundation may retain Federal reimbursement of parent institution
costs. The parent institution may either direct how the funds
will be used or permit the grantee foundation that discretion.

4. The affiliated institutions submit joint applications
for a PHS grant award, and the PHS grant award is made to them
jointly.

If none of the above conditions is met, the costs of the services
provided by the parent institution to the grantee foundation are
not allowable for reimbursement. However, the services may be
acceptable as third-party, in-kind contributions for matching
purposes (see section 6).

(1) For certain rebudgeting actions,
grantees must obtain any required prior approval in writing from
the GMO. For subgrants and contracts awarded by grantees, the
prior approval authority is usually the grantee. However, the
grantee may not approve any action or cost which is inconsistent
with the purpose or terms of the Federal grant. If an action by
a subgrantee or contractor will result in a change in the overall
grant project or budget requiring granting agency approval, the
grantee shall obtain the approval from PHS before giving its approval
to the subgrantee or contractor.

(2) All references to "contractors"
in this section on costs under PHS grants refer to cost-type contractors.

(3) References to nonprofit organizations
other than institutions of higher education and hospitals in this
section apply to such nonprofit organizations covered by OMB Circular
A-122, i.e., private nonprofit organizations. However, a few of
the larger nonprofit organizations which are specifically listed
in Attachment C to OMB Circular A-122 shall be subject to the
Federal cost principles applicable to commercial firms (48 CFR
Subpart 31.2) rather than to the cost principles for nonprofit
organizations. Rules governing the allowability of bid and proposal
costs and independent research and development costs for nonprofit
organizations are in subparagraphs 74.174(b) and (c) of 45 CFR
Part 74.

(4) This may be obtained from the Division
of Research Resources, National Institutes of Health, Bethesda,
MD 20892.

(5)The definition of "material
equity lease" in this section differs from the definition
of this term in the cost principles for educational institutions
(OMB Circular A-21). For those institutions, the definition in
A-21 shall govern.

(6) For this purpose, "training
grant" means any grant (subgrant, contract) under which PHS
financing is provided on a cost-reimbursement basis for all or
an agreed upon portion of the costs incurred for training or other
educational services. It does not include fellowships or similar
awards where recipients are not required to account on an actual
cash basis.